• Keep BUY, with new SOP-based MYR0.82 TP from MYR0.76, 33% upside and c.2% yield. We are upbeat on OCK Group’s digital venture with the new revenue stream expected to drive a new earnings leg-up. This comes on top of the recurring site leasing business which is benefitting from 5G deployments and its leadership in managed network services across Malaysia and Indonesia. We believe there is latent value for its towerco business with a potential monetisation/IPO in the longer term. OCK is trading at inexpensive 4.6x FY25F EV/EBITDA, with a 19% 3-year core earnings CAGR.

• Upside from digital venture. Management believes the new digital business (OCK Digital) could turn in triple-digit revenue over the next 2FYs. This is supported by a MYR300-MYR400m tenderbook comprising of government- and enterprise-related projects. The group’s end-to-end capabilities (from infrastructure deployment to connectivity solutions) and the good execution track record are key competitive advantages, in our view. Here, customers have access to a one-stop shop without the need to consult or rely on third parties and/or sub-contractors for their digitalisation needs. Note that OCK is already drawing a recurring stream of earnings from the MYR47m 5-year Ministry of Education (MOE) job clinched in 4Q23 for the leasing of notebooks to schools under a green initiative. We learnt that the new digital tenders are related to the transportation and retailing sub-segments which comes under the smart-city ambit.

• DC jobs are flowing in nicely. OCK has undertaken power solution jobs for three data centre (DC) operators in the Iskandar region with an outstanding orderbook of c.MYR20m. With the influx of fresh DC investments, coupled with capacity build-ups by wholesale co-location providers, we see the group benefitting from the greater demand for ancillary power solutions back-up jobs. The current DC tenderbook amounts to c.MYR50m and comprised of jobs for a hyperscaler expanding its cloud region in Malaysia and a leading US- headquartered global co-location provider that recently commissioned its maiden facility at the Nusajaya Technology Park (NTP), Johor.

• Forecasts upgraded; SOP-based TP lifted to MYR0.82. We raise FY24F-26F core earnings by 5-17% after factoring in incrementally stronger digital revenue contributions from 2H24F. We see the latter expanding to 7% and 11% of group revenue in FY25F and FY26F from c.2% in FY24F, from new project wins and commercialisation. The group’s outstanding orderbook of over MYR200m is mainly from the telco network services (TNS) segment (>80% share of revenue), MOE contract, DC and non-TNS jobs. Tenderbook of >MYR550m is made up of digital projects, TNS jobs and DC tenders. Our TP includes a revised 2% ESG premium (from 0%) following a re-assessment of its sustainability and governance practices. Key risks are delays in project execution, weaker-than-expected earnings and regulatory setbacks.

Source: RHB Research - 10 Jul 2024